Application Help for SAP Treasury and Risk Management

APPLICATION HELP | PUBLICSAP Treasury and Risk Management, Impairment Accounting Extension for Expected Losses2018-12-20

Application Help for SAP Treasury and Risk Management, Impairment Accounting Extension for Expected LossesBased on SAP ERP 6.0 EHP8, SPS 11

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Content

1 SAP Treasury and Risk Management, Impairment Accounting Extension for Expected Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2 About this Document. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2.1 Document History. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

3 Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

4 Business Function TRM: Expected Loss Impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

5 About SAP Treasury and Risk Management, Impairment Accounting Extension for Expected Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

5.1 Migrating Financial Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

5.2 Position Classification Using Stages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Displaying the Stage of a Position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Changing the Initial Stage Assignment of a Position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Stage Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

5.3 Key Date Valuation of a Financial Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Loss Allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Loss Allowance Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Entering a Loss Allowance Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Interest Correction for a Loss Allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

FX Valuation of a Loss Allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Applying a Write-Off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

5.4 Selling a Financial Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

5.5 Calculating Profits or Losses after Contract Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

5.6 Defining a Business Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

5.7 Components. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

5.8 Analytics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Enhanced Position Initialization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Enhanced Delta Position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

5.9 Information System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Enhanced Logical Database FTI_TR_POSITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

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Application Help for SAP Treasury and Risk Management, Impairment Accounting Extension for Expected Losses

Content

1 SAP Treasury and Risk Management, Impairment Accounting Extension for Expected Losses

The SAP Treasury and Risk Management, impairment accounting extension for expected losses allows you to handle impairment based on the expected loss model.

Product Available as Release and Support Package Stack (SPS)

SAP enhancement package 8 for SAP ERP 6.0, SPS 6

User Assistance Based on Release and Support Package Stack (SPS)

SAP enhancement package 8 for SAP ERP 6.0, SPS 11

The accounting standard IFRS 9 (International Financial Reporting Standards) released by the International Accounting Standards Board (IASB) consists of the following three phases:

● Phase 1: Classification and measurement● Phase 2: Impairment● Phase 3: Hedge accounting

The main objective of phase 2 of the accounting standard IFRS 9 is to shift from the incurred loss model to the recognition of expected losses. The SAP Treasury and Risk Management, impairment accounting extension for expected losses solution focuses on covering the accounting requirements of IFRS 9 phase 2.

Application Help for SAP Treasury and Risk Management, Impairment Accounting Extension for Expected LossesSAP Treasury and Risk Management, Impairment Accounting Extension for Expected Losses P U B L I C 3

2 About this Document

This document describes the features of the impairment accounting extension for expected losses. It provides information you need to navigate through this application.

This document addresses the following target audience:

● Key users● End users● Decision makers

2.1 Document History

See what changes have been made to this document since it was first released.

NoteThe latest version of this document is available on SAP Help Portal at http://help.sap.com/impairmenterp.

Document Version Date Description More Information

1.0 2018-04-04 Initial version

1.1 2018-10-10 Section about the solution-specific business function added

Examples that illustrate various options for defining the loss allowance value for the key date valuation added

List of impairment-relevant fields of origin for the extract structure corrected

Business Function TRM: Expected Loss Impairment [page 7]

Examples for the Loss Allowance Value [page 21]

Enhanced Position Initialization [page 28] and Enhanced Delta Position [page 30]

1.2 2018-12-20 How-to video added Displaying the Stage of a Position [page 14]

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About this Document

http://help.sap.com/impairmenterp

3 Glossary

Refer to the following table for some of the most common terms used within the solution.

Term Definition More Information

amortized cost A method used for valuation and position management of bonds.

This derived position component specifies the amortized cost (in position currency). You can use it in the Transaction Manager when you run reporting for a particular date or when you run an evaluation of positions for a key date.

The amortized cost is calculated by adding the following values:

● Amortized acquisition value● Loss allowance● Foreign exchange (FX) loss allow

ance

Components [page 27]

loss allowance A monetary reserve that is used to protect a financial asset against credit risk.

The loss allowance consists of impairments and provisions that you can use if a potential loss occurs. This position component specifies the loss allowance (in position currency).

You can use it in the Transaction Manager when you run reporting for a particular

date or when you run an evaluation of positions for a key date.

Loss Allowance [page 19]

loss given default An expected loss (in percent) that is due to payment defaults.

Loss Allowance Calculation [page 19]

offset loss allowance The reversal of the loss allowance in a balance sheet-neutral way (book value remains unchanged).

Loss Allowance [page 19]

Application Help for SAP Treasury and Risk Management, Impairment Accounting Extension for Expected LossesGlossary P U B L I C 5

Term Definition More Information

position stage A value that is used to classify positions within a valuation area.

Example

You can use position stages to classify financial instruments according to the accounting standard IFRS 9 (International Financial Reporting Standards).

Use the TRPA_TRANSFER transaction to transfer stages of positions from one stage value to another according to IFRS 9.

Position Classification Using Stages [page 14]

stage transfer A process according to IFRS 9 that changes the assigned stage of a position.

Stage Transfer [page 15]

write-off The calculation of depreciation of a fi-nancial asset based on an incurred loss.

A write-off is part of the key date valuation.

A write-off decreases the loss allowance position component and increases the impairment position component.

Applying a Write-Off [page 24]

12-month probability of default The likelihood in per cent that an initial purchase of a financial asset loses part of its value over the next 12 months. This probability of default is used to calculate the exposure.

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Glossary

4 Business Function TRM: Expected Loss Impairment

To use the impairment-relevant functions, you must create and activate a customer-defined business function.

Use

Technical Data

Technical Name of Business Function Example: Z_FIN_TRM_EXP_LOSS_IMPMNT

Type of Business Function Enterprise Business Function

Available As Of SAP enhancement package 8 for SAP ERP 6.0, SPS 6

Technical Usage Financial Services

Application Component Treasury and Risk Management (FIN-FSCM-TRM)

Directly Dependent Business Function Requiring Activation in Addition

Financial Services (EA-FS)

CautionThis business function is not reversible. You cannot deactivate it once you have activated it.

Prerequisites

You have installed the following components and versions:

Type of Component ComponentIs Needed Only for the Following Features

Software Component EA-FINSERV 618 SP06 or higher

SAP_APPL 618 SP06 or higher

You have activated the enterprise extension Financial Services (EA-FS).

Application Help for SAP Treasury and Risk Management, Impairment Accounting Extension for Expected LossesBusiness Function TRM: Expected Loss Impairment P U B L I C 7

Features

MigrationThe migration to IFRS 9-compatible security positions either within an existing valuation area or from the existing to a new valuation area is supported.

Valuation ClassThe activation of single position management can be customized on the level of the valuation class.

Purchase● When you buy a financial asset, the corresponding position of a valuation area that is relevant to IFRS is set

to the initial stage according to the Customizing settings.● When you purchase a security with the standard transaction FTR_CREATE, you can assign a divergent

initial stage.

Stage Handling● In the context of IFRS 9, the following stages are introduced:

○ External stage: This stage is according to IFRS 9.○ Internal stage: This staging can subdivide the external stage into several internal stages.

● You can classify a position by an external and internal stage. As this classification is based on the level of the position, you can only change it for the whole position. This classification concept introduces a flexible solution to cover the stage requirements of IFRS 9.

● You can change the stage of a position by the using the stage transfer transaction TRPA_STAGE_TRANSFER.

Key Date Valuation● The key date valuation contains all new components.● The defined PD/LGD values are part of the exposure calculation in valuation areas relevant for IFRS 9.● You can define additional valuation steps for the key date valuation.

New Master DataYou can use the following master data functions:

● Loss given default (LGD)● 12-month probability of default and lifetime probability of default

Write-Off● A write-off is applied when there is no reasonable expectation of recovering of (a portion of) the asset.● The impairment component (1201) is reused for write-off.● A write-off takes place during the key date valuation when you have a corresponding valuation step

defined.● You define a write-off in stage Customizing. Only positions that have a stage that is marked as relevant for

write-off are considered for write-off.● The write-off decreases the loss allowance component and increases the write-off component.

Position Outflow (Example: Selling)You can execute a valuation for securities during position outflow using the sales price.

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Business Function TRM: Expected Loss Impairment

New ComponentsYou can use the following components:

Name Description

Loss Allowance (1306) The component value is calculated during the key date valuation for the IFRS 9 valuation area when the corresponding valuation step is maintained. The calculated value depends on the probability of default (PD) and loss given default (LGD).

Loss Allowance FX (1307) The component value is calculated during the key date valuation for the IFRS 9 valuation area. It covers the FX effects of the loss allowance component.

Offset Loss Allowance (1308) The component value is calculated during the key date valuation for the IFRS 9 valuation area when the corresponding valuation step is maintained. The calculated value resets the loss allowance component value so that the book value is not changed by the loss allowance.

Offset Loss Allowance FX (1309) The component value is calculated during the key date valuation for the IFRS 9 valuation area. It covers the FX effects of the offset loss allowance component.

OCI Offset Loss Allowance (1312) The component value is calculated during the key date valuation for the IFRS 9 valuation area when the corresponding valuation step is maintained. The calculated value represents an OCI account to which the loss allowance amount of the books is transferred.

OCI Offset Loss Allowance FX (1313) The component value is calculated during the key date valuation for the IFRS 9 valuation area. It covers the FX effects of the OCI offset loss allowance component.

Contractual Change (1310) The position value of the contractual change position component is calculated based on the gains and losses caused by contract modifications.

Contractual Change FX (1311) The component value is calculated during the key date valuation for the IFRS 9 valuation area. It covers the FX effects of contractual change component.

Amortized Cost (9005) Amortized cost is a derived component as defined in IFRS 9 that is sometimes also referred to as net carrying amount. The value can be calculated by adding up the following values:

Amortized acquisition value, loss allowance, and loss allowance FX.

Application Help for SAP Treasury and Risk Management, Impairment Accounting Extension for Expected LossesBusiness Function TRM: Expected Loss Impairment P U B L I C 9

Integration into Standard Reporting FunctionsThe following reporting functions are enhanced:

● List of position values (transaction TPM12)● List of the position flows (transaction TPM13)● Logical database (LDB):

○ FTI_TR_POSITIONS○ FTI_TR_PERIODS

● Simulated valuation● CFM position extractors for SAP Business Information Warehouse

More Information

For more information about creating and activating the customer-defined business function, see SAP Note 2388523 .

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Business Function TRM: Expected Loss Impairment

http://help.sap.com/disclaimer?site=https://launchpad.support.sap.com/#/notes/2388523

5 About SAP Treasury and Risk Management, Impairment Accounting Extension for Expected Losses

The impairment accounting extension includes the following features:

Key Features

Key Feature Use

Migrating Financial Instruments [page 13] This solution helps you to migrate existing financial instruments.

Position Classification Using Stages [page 14] You can classify financial instruments into stages. The classification is done on the level of the treasury position.

● If you purchase a security, you can change the initial stage assignment during the purchase.

● If there is a significant change in credit risk, the stage assignment of financial instruments may be changed. Typically, the stage assignment is changed during the period closing activities on the day of the period closing. The business transaction to change the stage assignment is processed before the key date valuation.

Changing the Initial Stage Assignment of a Position [page 15]

When you purchase a financial asset and have activated the classifier functionality for the relevant valuation area, the system assigns an initial stage to the financial asset. If you purchase a security, you can change the initial stage assignment during the purchase.

Stage Transfer [page 15] It is assumed that the asset manager checks the credit risk of the fi-nancial assets during the whole life cycle of the financial instruments. If there is a significant change in credit risk, the stage assignment of fi-nancial instruments may be changed. Typically, the stage assignment is changed during the period closing activities on the day of the period closing.

The solution supports the stage assignment on the level of the treasury position. The business transaction to change the stage assignment is processed before the key date valuation.

Application Help for SAP Treasury and Risk Management, Impairment Accounting Extension for Expected LossesAbout SAP Treasury and Risk Management, Impairment Accounting Extension for Expected Losses P U B L I C 11

Key Feature Use

Loss Allowance Calculation [page 19] The key date valuation is enhanced by additional steps to calculate a loss allowance and the foreign exchange (FX) effect for the loss allowance. The loss allowance can be posted to the general ledger and thus helps to show the expected losses for a financial instrument.

Depending on your Customizing for the stage assignment of the finan-cial asset, either the 12-month probability of default or the lifetime probability of default is used to calculate the loss allowance. As exposure, the amortized acquisition value is used as default. For credit-impaired financial instruments, you can calculate an interest correction, which expresses the difference if the effective interest rate is applied to the gross or net carrying amount of a financial instrument. You can also define a customer-specific calculation logic.

Applying a Write-Off [page 24] For credit-impaired financial instruments, you can apply a write-off if there is no reasonable expectation of recovering (a portion) of the fi-nancial asset.

Selling a Financial Asset [page 25] When a financial instrument is sold, you can trigger the automatic valuation of the position.

Calculating Profits or Losses after Contract Modification [page 26]

You can handle contract modifications that require the realization of modification gains or losses according to IFRS 9. This is a manual process step. The fair value and effective interest rate before a contract modification are determined. After applying the contract modification, the old effective interest rate is applied to the new cash flow and the resulting fair value is compared with the old fair value.

Components [page 27] The new components and flows are integrated in the standard reporting functions of SAP Treasury and Risk Management. Example: You can use the TPM13 (Subledger Cash Flow) transaction to display the corresponding flows or the TPM12 (Subledger Positons) transaction to display the new components.

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About SAP Treasury and Risk Management, Impairment Accounting Extension for Expected Losses

5.1 Migrating Financial Instruments

To use existing financial instruments in the impairment accounting extension according to IFRS 9, migrate them by executing different process steps. The number of process steps you must execute depends on how you use the extension.

Procedure

1. Initialize a new valuation area:

If you want to use the impairment accounting extension within a new valuation area, initialize it by executing the Customizing activity Initialization of Parallel Valuation Area in Customizing for Financial Supply Chain Management under Treasury and Risk Management, choose Transaction ManagerGeneral Settings Accounting Organization.

If the new components of the impairment accounting extension are already entered in the valuation area that is used as a basis for the new one, the system transfers the components to the new valuation area.

Prerequisites

Before you can initialize a new valuation area, in Customizing for Financial Supply Chain Management under Treasury and Risk Management, choose Transaction Manager General Settings AccountingOrganization Define Valuation Areas and Assign Accounting Codes and Valuation Areas.

NoteIf you want to use an existing valuation area, you can ignore this step.

2. Apply a valuation class transfer to change the valuation class and assign the initial stage.

The valuation class keeps accounting-relevant information. It is assumed that if you change from the existing accounting principle to IFRS 9, you process a valuation class transfer. During the valuation class transfer, the initial stage can be determined. You can also use the valuation class transfer to move from average accounting to single position management.

If you have activated the classifier function in Customizing for Financial Supply Chain Management under Treasury and Risk Management Transaction Manager General Settings Accounting Settings for

Position Management Position Classifier Activate Position Classifiers by Accntg Cde and Valuat. Area , the system automatically assigns a stage to the target positions that are created in single position management.

NoteIf you want to migrate from average positions to single position management during the valuation class transfer, make the following Customizing activity as prerequisite: Enter a single position management procedure for the relevant valuation class transfer in Customizing for Financial Supply Chain Management under Treasury and Risk Management Transaction Manager General SettingsAccounting Settings for Position Management Define and Assign Differentiations.


1. Use transaction TPM15M, enter a company code, ID number, and your security account to select a position to be transferred from average to single position management.

2. Deselect the Test Run checkbox.3. Execute the report.4. In the displayed list, select the position that you want to transfer, and enter the new valuation class.

3. Calculate the initial loss allowance.To calculate the loss allowance and skip all other valuation steps, use the TRPA_LA_VAL transaction.

Related Information

Loss Allowance Calculation [page 19]

5.2 Position Classification Using Stages

According to IFRS 9, the different flows of a position should be classified. The impairment accounting extension allows you to classify positions within a valuation area using stages.

To classify a position, you assign it to a stage. The classification impacts the valuation of a position. The change of a classification can trigger classifier transfer flows.

5.2.1 Displaying the Stage of a Position

You can display the assigned stage of a position as well as the history of assigned stages of a position.

Context

This how-to video shows how you display the assigned stage of a position in the subledger position indicator in the TS06 transaction.

Open this video in a new window

Procedure

1. In the SAP Menu, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Trading Display (TS06).

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https://www.kaltura.com/p/1921661/sp/192166100/embedIframeJs/uiconf_id/37285991/partner_id/1921661?iframeembed=true&playerId=kaltura_player&entry_id=1_52i8crzf

2. Enter an existing security transaction. Choose Enter.

3. Choose More Environment Position Indicator Display.4. In the subledger position indicator, choose Change Layout and add the Classifier to the list of displayed

columns.5. Choose Classifier.

The assigned stage of the position and the history of assigned stages of the position is displayed.

5.2.2 Changing the Initial Stage Assignment of a Position

When you purchase a financial asset (security), you can manually change the initial stage (stage 1) that the system assigns to the corresponding position.

Procedure

1. To change the initial stage, use the FTR_CREATE transaction.2. On the Administration tab page, change the value in the Initial Stage field.3. Choose Save.

5.2.3 Stage Transfer

An asset manager checks the credit risk of the financial assets during the whole life cycle of the financial instruments. If there is a significant change in credit risk, the stage assignment of financial instruments may be changed. Typically, the stage assignment is changed during the period closing activities on the day of the period closing.

If you transfer stages of positions from one stage value to another stage, the stage information is available for reporting purposes and in subsequent systems.

Procedure

1. Run the TRPA_TRANSFER transaction.2. In the Data Selection area, select one option for the stage transfer.

The system displays a list of positions for stage transfer according to your selection criteria. You can download this list as an Excel file, enter a target stage and upload it again to run the report for the stage transfer.

3. Enter a target stage.

For more information about the stage transfer, see the system documentation.


You can also reverse a stage transfer: Execute the TRPA_TRANSFER_REV transaction. For more information, see the system documentation.

5.2.3.1 Stage Transfer with Internal Stages

It is optional to use internal stages. An internal stage is only required if you apply stage transfers within a period and you want to mark the time between the stage transfer and the period closing. That may be necessary if you want to use a different amortization procedure for the time between the stage transfer and the period closing, or if you want to start with the calculation of an interest correction after period closing.

How To Trigger a Stage Transfer with an Internal Stage

The scheduled stage transfer is based on the internal stage (also called classifier 2): If you use an internal stage, the stage transfer within a period is triggered manually and the stage transfer is executed at the end of the period as a scheduled stage transfer.

You can select a scheduled transfer in the TRPA_TRANSFER transaction: The system uses the settings from the Customizing activity Define the Position Classifier Order: If the current entry for classifier 2 isn't defined as default value in the above Customizing activity, the system schedules a stage transfer to the default entry at the end of a period according to the Business Add-In (BAdI) method DETERMINE_END_OF_PERIOD of the BAdI TPM_TRPA_CLASSIFIER_MANIPULATE.

The following examples show the different scenarios for using an internal stage.

ExampleThe easiest scenario is to perform the stage transfer on the day of period closing and to use only one classifier. The changes that are related to the assigned stages, such as, interest correction or a different amortization procedure, are always valid for the whole period and are changed after the closing date.

The following table shows the stage assignment for an asset if only one classifier is used and the stage transfers is executed on the last day of the reporting period.

Example 1

Date External Stage (Classifier 1)

01.01.2018 1

31.03.2018 3

ExampleThe following example shows the stage assignment for an asset if a stage transfer is executed during the reporting period, but classifier 2 isn't used. As a result, the classifier-related behavior is changed during the period.

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Example 2

Date External Stage (Classifier 1)

01.01.2018 1

20.02.2018 2

31.03.2018 3

ExampleIf is required to change the classifier during the period, but the behavior of the position should only change after the next period closing, classifier 2 can be used. Example: If it is necessary to use a different amortization procedure after a transfer to stage 3, the transfer should be visible only after the start of the new reporting period, but on the specific day of the transfer change.

The following example shows the stage assignment for an asset if a stage transfer is executed during the reporting period and classifier 2 is used.

Example 3

Date External Stage (Classifier 1) Internal Stage (Classifier 2)

01.01.2018 1 1G

20.02.2018 2 2G

31.03.2018 3 2N

5.2.3.2 Assignment of Stage-Dependent Amortization Procedures

You can assign amortization procedures that overwrite the amortization procedure that you have specified in the position management procedure. The amortization procedures depend on the position classifiers of the position indicator.

In Customizing for Financial Supply Chain Management, choose Treasury and Risk ManagementTransaction Manager General Settings Accounting Settings for Position Management Position Classifier

Assign Amortization Procedure to Stage.

If you don't enter an amortization procedure and have selected the No Amort checkbox, the system doesn't execute an amortization. Thus, the system skips the amortization step during the valuation or creation of derived flows.


Example

Sample Customizing Settings

Position Management Procedure.

External Stage Description

Internal Stage Description

No Amortization

Amortization Procedure Description

AC01 1 12-months 1000 Linear Amortized Cost (LAC) Net

AC01 2 lifetime X

AC01 3 credit-impaired

X

Related Information

Stage Transfer [page 15]

5.3 Key Date Valuation of a Financial Asset

You perform key date valuations for financial assets so that the results are calculated according to the IFRS 9 requirements.

With the impairment accounting extension, you can execute the following additional steps within the key date valuation:

● Calculating a loss allowanceThe valuation step for the loss allowance is part of the loss allowance component, which is part of the book value.

● Perform an FX valuation of a loss allowance● Applying a write-off

Learn more about these steps in the following sections.

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5.3.1 Loss Allowance

The loss allowance is a monetary reserve you can use to protect a financial asset against different risks. You can use this reserve if a potential loss occurs. The loss allowance is fully integrated into the Treasury and Risk Management processes so that you have a good view of the current loss allowance.

You can create a loss allowance with or without offset flows. If you use a loss allowance with offset flows, the system creates flows with the same amount. The offset flows are also part of the book value and have the opposite direction of loss allowance flows.

ExampleYou can use a loss allowance with offset flows for financial instruments that are measured at fair value through OCI (FVOCI). These flows offset the effect of the loss allowance flow. You can use this option if you want to see the loss allowance, but record the whole effect in the security valuation. For more information about the calculation logic, see the Components section.

You can also suppress the reset flows for the loss allowance effects even for valuations with reset. Accountants who don't want to reset the loss allowance values can use this option.

Related Information

Components [page 27]

5.3.2 Loss Allowance Calculation

You can calculate the loss allowance during the key date valuation for each position. It is a separate key figure that is recorded as a negative amount, which is relevant for profit and loss (P/L).

The system calculates the loss allowance as follows:

Loss allowance = probability of default × loss given default × exposure

NoteIn Customizing, you can define different default groups. For example, you can define a default group that uses the 12-months probability of default and one that uses the lifetime probability of default. In Customizing for Financial Supply Chain Management, choose Treasury and Risk ManagementTransaction Manager General Settings Accounting Settings for Position Management Position Classifier Assign Default Types to Default Groups.

For financial assets in stage 1, the system calculates the expected loss using the 12-months probability of default. For financial assets in stage 2 and 3, the lifetime probability of default is relevant for the expected loss calculation.


More Information

● To enter default rates for the probability of default and loss given default, use the TRPA_DRATES transaction.

● To execute the loss allowance valuation step and skip all other valuation steps, use the TRPA_LA_VAL transaction. For more information, see the system documentation.

● To reverse the loss allowance valuation step, use the TRPA_LA_VAL_REV transaction. For more information, see the system documentation.

5.3.3 Entering a Loss Allowance Value

In addition to the loss allowance calculation, you can also enter a specific loss allowance value that you want to use in the loss allowance step of a key date valuation. You can use a value in position currency, valuation currency or in both currencies.

Procedure

1. Execute transaction TRPA_LAVALS.

2. Enter the key date, the differentiation criteria of the relevant position, a loss allowance value in position currency, valuation currency or in both currencies, and select whether you want to use the loss allowance value during a write-off.

○ If you don't enter a target loss allowance value, the system calculates the loss allowance value according to your Customizing settings for the loss allowance.

○ If you select the Write-Off checkbox, you enable a write-off.

For more information about the settings for the loss allowance value, see the examples in the following section.

Related Information

Examples for the Loss Allowance Value [page 21]Applying a Write-Off [page 24]

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5.3.3.1 Examples for the Loss Allowance Value

These examples illustrate the various options for defining the loss allowance value for the key date valuation.

Options for Target Loss Allowance

If you want to use a target loss allowance value for a particular key date, valuation area, company code, security ID, and security account, see the following possible options:

Option 1

1. Create an entry for the differentiation values.2. Add a negative target loss allowance amount in position currency only.3. Leave the loss allowance amount in valuation currency empty.

Target Loss Allowance

Field Name Field Value

Key Date 31.12.2018

CoCd (Company Code) 0001

Valuation Area 001

ID Number BOND_01

Security Acct SEC_ACC_01

Loss Allowance in PC -10,000 UNI

Loss Allowance in VC

Write-Off Checkbox not selected

Option 2

1. Create an entry for the differentiation values.2. Add a negative target loss allowance amount in valuation currency only.3. Leave the loss allowance amount in position currency empty.

NoteIf you don't enter a loss allowance amount in position currency, the system calculates the loss allowance amount in position currency based on the loss allowance amount in valuation currency by using the key date exchange rate.



Field Name Field Name

Key Date 31.12.2018


Valuation Area 001

ID Number BOND_01


Loss Allowance in PC

Loss Allowance in VC -10,000 UNI


Option 31. Create an entry for the differentiation values.2. Add a negative target loss allowance amount in position currency.3. Add a negative target loss allowance amount in valuation currency.

NoteIf you enter the loss allowance amount in position and valuation currency, the system uses these values to calculate the write-up/write-down amount in position and valuation currency.



Key Date 31.12.2018


Valuation Area 001

ID Number BOND_01



Loss Allowance in VC -10,000 EUR


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Write-Off Options

Option 1If you want to execute the write-off in the key date step, see the following example:

Write-Off


Key Date 31.12.2018


Valuation Area 001

ID Number BOND_01




Write-Off Checkbox selected

Option 2If you want to execute the write-off in the key date step, but want to have the target loss allowance calculated, see the following example:

Write-Off with Target Loss Allowance Calculation


Key Date 31.12.2018


Valuation Area 001

ID Number BOND_01


Loss Allowance in PC


Write-Off Checkbox selected

5.3.4 Interest Correction for a Loss AllowanceWhen an asset is not credit-impaired, the interest revenue is calculated by applying the effective interest rate (EIR) to the gross carrying amount. When an asset becomes credit-impaired according to IFRS 9, the interest


revenue is calculated by applying the effective interest rate to the amortized cost (net carrying amount) of the asset. The gross carrying amount reduced by the loss allowance represents the net carrying amount.

In the system, according to the impairment transition group, this can be reflected by applying the EIR to the gross carrying amount (amortized acquisition value) and applying the same EIR to the loss allowance. That means an interest correction is calculated.

ExampleOn September 30, 2018, key date valuation without reset takes place that increases the loss allowance to 20,000 USD.

On December 31, 2018, key date valuation without reset takes place that increases the loss allowance to 30,000 USD.

On December 31, 2018, the interest correction for the existing loss allowance is calculated for the period after the last amortization without reset. That means for the period from September 30, 2018 to December 31, 2018, the interest correction is calculated for the loss allowance of 20,000 USD.

Loss allowance (LA): 20,000 USD

Calculation period: 91 days

Base days: 360

Internal effective interest rate for the security position: 2.0060254%

The formula for calculating the interest correction is as follows:

LA * (1 + Int.Eff.Int.) (Calculation period/base days) – LA

In this example: 20,000 * 1,020060254 (91/360) – 20,000 = 106,66 USD

5.3.5 FX Valuation of a Loss Allowance

You can perform an FX valuation for a loss allowance. If you calculate an offset loss allowance during the loss allowance valuation, the system also performs an FX valuation of the offset loss allowance.

5.3.6 Applying a Write-Off

A write-off is an additional step in the key date valuation. It decreases the loss allowance component and increases the impairment component. You apply a write-off for financial assets that are classified into stage 3 when there is no reasonable expectation of recovering (a portion of) the asset. The write-off is always the last step of the key date valuation.

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Procedure

1. Enter the key date, and the differentiation criteria for each position, and select the Write-Off checkbox.

In the SAP Menu menu, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Accounting Position Classifier Loss Allowance Valuation Enter Loss Allowance Value , or use the TRPA_LAVALS transaction.

2. Optional: Enter a loss allowance (write-off) amount.

NoteIf you enter a loss allowance amount, please remember that it must be negative.

3. Valuate the whole position.

In the SAP Menu screen, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Accounting Valuation Execute Valuation , or use transaction TPM1.

The system executes all valuation steps and adjusts the loss allowance according to the default rates or entered value. It executes the write-off, creates flows to clear the loss allowance and post it to the write-off.

5.4 Selling a Financial Asset

You execute additional processes for a financial asset that is classified according to the impairment accounting extension when it is sold.

Procedure

1. Create a position outflow as a sale of a position using the FTR_CREATE transaction.

2. Make your entries to sell the position.

The system automatically executes the valuation for this position including the valuation for securities during the position outflow.

If the stage of the position corresponds to the stages that are relevant according to the Customizing settings, the system executes the loss allowance valuation.


5.5 Calculating Profits or Losses after Contract Modification

A contract modification leads to a change of a loan, a money market or the security master data of a financial instrument. The changes affect all valuation areas. Gains or losses due to contract modifications are created for the valuation area related to IFRS 9 and are recognized on a new component.

Procedure

1. Start a key date valuation without reset for the security or loan for which you want to change the contractual data.

On the SAP Easy Access screen, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Accounting Valuation Execute Valuation.

2. Change the security master data or the loan.3. Calculate the profits or losses for selected positions after a contract modification.

On the SAP Easy Access screen, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Accounting Position Classifier Contract Modification Calculate Profit/Loss after Contract Modification , or use the TRPA_CMF transaction.

The system creates the relevant business transactions and the fair value of the changed security or loan.

For more information, see the documentation of the TRPA_CONTRACT_MODIFICATION report in the system.

4. Optional: To reverse the calculation of profits or losses, first reverse the corresponding business transactions, and then undo the changes of the loan, money market or the security master data manually.

To reverse business transactions, on the SAP Easy Access screen, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities AccountingPosition Classifier Contract Modification Reverse Calculation of Profit/Loss after Contract Modification , or use the TRPA_CMF_REV transaction.

For more information, see the documentation of the TRPA_CONTRACT_MODIFICATION_REV report in the system.

5.6 Defining a Business Model

According to IFRS 9, financial assets are classified based on their contractual cash flow characteristics, and the business model, which describes how they are managed to achieve a business objective. In the impairment accounting extension, you use the valuation class of a position to classify a position into a category, such as:

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● Fair value through OCI (FVOCI)● Fair value through profit or loss (FVPL)● Amortized cost

According to IFRS 9, the category validity for a position depends on the SPPI (solely payments of principal and interest) criteria, and the business model assessment. With the impairment accounting extension, you can use the following business models:

● A business model that holds a financial asset to collect contractual cash flows (Held to collect contractual cash flows)

● A business model that holds a financial asset to collect contractual cash flows and sell financial assets (Held to collect contractual cash flows and for sale)

● A business model with another objective, for example, trading of financial assets (Other business models)

NoteThe definition of a business model is optional. You only need to define a business model if only certain combinations of valuation class, business model and SPPI criterion are allowed for the purchase of a financial asset.

Procedure

1. Define the business model based on one of the following levels of information:○ Company code, security account, and portfolio○ Company code and security account○ Company code and portfolio○ Company code

In the SAP Menu menu, choose Accounting Financial Supply Chain Management Treasury and Risk Management Transaction Manager Securities Accounting Position Classifier Enter Business Model , or use transaction TRPA_BM_ASSIGN.

2. Define valid combinations of valuation area, valuation class, business model, and SPPI criteria in Customizing for Financial Supply Chain Management under Treasury and Risk ManagementTransaction Manager General Settings Accounting Settings for Position Management Position Classifier Define Valid Parameter Combinations for the Position Creation.

3. You can display the business model of a position by using the transaction TPM12.

5.7 Components

The impairment accounting extension introduces new components and uses existing ones, which are impairment-relevant. The components correspond to an account and the granularity is that all account-relevant postings can be derived from changes of components. A change of a component is triggered by a flow, which leads to a decrease or an increase of a component.

According to the IFRS 9 requirements, you can use the following components:


● Loss Allowance● FX Loss Allowance● Offset Loss Allowance● Offset FX Loss Allowance● OCI Offset Loss Allowance (unrealized and not part of book value)● OCI Offset FX Loss Allowance (unrealized and not part of book value)● Modification of Gains/Losses of Contract Modifications● Amortization Adjustment of Loss Allowance (not part of book value)● FX Amortization Adjustment of Loss Allowance (not part of book value)● Existing Impairment Component Used for Write-Off● Gross Carrying Amount (new IFRS 9-specific figure)● Amortized Cost as defined in IFRS 9 (also referred to as Net Carrying Amount)

The following figure shows how the derived components are calculated based on the original components:

Logic for the Calculation of Derived Components

5.8 Analytics

5.8.1 Enhanced Position Initialization

Technical Name: 0CFM_INIT_POSITIONS

The 0CFM_INIT_POSITIONS DataSource is enhanced by impairment key figures.

Use

This DataSource loads the initial values for the position key figures and the impairment key figures.

In addition to the key fields for position-differentiating characteristics, evaluation key date, and the posting status, it extracts the associated units local currency, position currency, and valuation currency. Moreover, this DataSource loads the lot attributes.

As actual key figures, the initial position values reflect the accounting view of the positions for the key date.

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The following impairment-relevant fields of origin for the extract structure have been added:

Added Fields of Origin for the Extract Structure

Added Fields in the Extract Structure

Description of the Added Field in the Extract Structure Table of Origin Field in Table of Origin

LS_AL_PC Loss Allowance in Position Currency

LS_AL_LC Loss Allowance in Local Currency

LS_AL_VC Loss Allowance in Valuation Currency

LS_AL_FX_LC Loss Allowance FX in Local Currency

LS_AL_FX_VC Loss Allowance FX in Valuation Currency

AA_LS_AL_PC Amortization Adjustm. of Loss Allowance in Position Currency

AA_LS_AL_LC Amortization Adjustm. of Loss Allowance in Local Currency

AA_LS_AL_VC Amortization Adj. of Loss Allowance in Valuation Currency

AA_LS_AL_FX_LC Amortization Adjustm. of Loss Allowance FX in Local Currency

AA_LS_AL_FX_VC Amortization Adjust. of Loss Allowance FX in Valuation Crcy.

OF_LS_AL_PC Offset Loss Allowance in Position Currency

OF_LS_AL_LC Offset Loss Allowance in Local Currency

OF_LS_AL_VC Offset Loss Allowance in Valuation Currency

OF_LS_AL_FX_LC Offset Loss Allowance FX in Local Currency

OF_LS_AL_FX_VC Offset Loss Allowance FX in Valuation Currency




OCI_OF_LA_PC OCI Offset Loss Allowance in Position Currency

OCI_OF_LA_LC OCI Offset Loss Allowance in Local Currency

OCI_OF_LA_VC OCI Offset Loss Allowance in Valuation Currency

OCI_OF_LA_FX_LC OCI Offset Loss Allowance FX in Local Currency

OCI_OF_LA_FX_VC OCI Offset Loss Allowance FX in Valuation Currency

CN_CG_PC Contractual Change in Position Currency

CN_CG_LC Contractual Change in Local Currency

CN_CG_VC Contractual Change in Valuation Currency

CN_CG_FX_LC Contractual Change FX in Local Currency

CN_CG_FX_VC Contractual Change FX in Valuation Currency

AM_COST_PC Amortized Cost in Position Currency

AM_COST_LC Amortized Cost in Local Currency

AM_COST_VC Amortized Cost in Valuation Currency

More Information

For more information about the 0CFM_INIT_POSITIONS DataSource, see the application help for SAP ERP on SAP Help Portal at http://help.sap.com/erp. Open the product page for your SAP ERP release and search for "0CFM_INIT_POSITIONS".

5.8.2 Enhanced Delta Position

Technical Name: 0CFM_DELTA_POSITIONS

The 0CFM_DELTA_POSITIONS DataSource is enhanced by impairment key figures.

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http://help.sap.com/erp

Use

This DataSource loads the delta values for the position key figures and the impairment key figures.

In addition to the position-differentiating characteristics, position value date, and the posting status, it extracts the associated units local currency, position currency, and valuation currency. It also loads the number of the security or futures transaction, the counterparty reference, the update type, the business transaction category, the ID of the distributor business transaction, and the number of the treasury ledger (TRL) flow. These attributes are needed for BW updates. This InfoSource also uploads the lot attributes.

The delta position values are the actual key figures that reflect the accounting view.

The following impairment-relevant fields of origin for the extract structure have been added:

Added Fields of Origin for the Extract Structure



D_LS_AL_PC Delta Loss Allowance in Position Currency

D_LS_AL_LC Delta Loss Allowance in Local Currency

D_LS_AL_VC Delta Loss Allowance in Valuation Currency

D_LS_AL_FX_LC Delta Loss Allowance FX in Local Currency

D_LS_AL_FX_VC Delta Loss Allowance FX in Valuation Currency

D_AA_LS_AL_PC Delta Amortization Adjustmen Loss Allow. in Pos. Currency

D_AA_LS_AL_LC Delta Amortization Adjustment Loss Allow. in Local Currency

D_AA_LS_AL_VC Delta Amortization Adjustment Loss Allow. in Valuation Crcy.

D_AA_L_A_FX_LC Delta Amortization Adjustment Loss Allow. FX in Local Crcy.

D_AA_L_A_FX_VC Delta Amortization Adjustment Loss Allow. FX in Val. Crcy.




D_OF_LS_AL_PC Delta Offset Loss Allowance in Position Currency

D_OF_LS_AL_LC Delta Offset Loss Allowance in Local Currency

D_OF_LS_AL_VC Delta Offset Loss Allowance in Valuation Currency

D_OF_LS_AL_FX_LC Delta Offset Loss Allowance FX in Local Currency

D_OF_LS_AL_FX_VC Delta Offset Loss Allowance FX in Valuation Currency

D_OCI_OFLA_PC Delta OCI Offset Loss Allowance in Position Currency

D_OCI_OFLA_LC Delta OCI Offset Loss Allowance in Local Currency

D_OCI_OFLA_VC Delta OCI Offset Loss Allowance in Valuation Currency

D_OCI_OFLA_FX_LC Delta OCI Offset Loss Allowance FX in Local Currency

D_OCI_OFLA_FX_VC Delta OCI Offset Loss Allowance FX in Valuation Currency

D_CN_CG_PC Delta Contractual Change in Position Currency

D_CN_CG_LC Delta Contractual Change in Local Currency

D_CN_CG_VC Delta Contractual Change in Valuation Currency

D_CN_CG_FX_LC Delta Contractual Change FX in Local Currency

D_CN_CG_FX_VC Delta Contractual Change FX in Valuation Currency

D_AM_COST_PC Delta Amortized Cost in Position Currency

D_AM_COST_LC Delta Amortized Cost in Local Currency

D_AM_COST_VC Delta Amortized Cost in Valuation Currency

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More Information

For more information about the 0CFM_DELTA_POSITIONS DataSource, see the application help for SAP ERP on SAP Help Portal at http://help.sap.com/erp. Open the product page for your SAP ERP release and search for "0CFM_DELTA_POSITIONS".

5.9 Information System

5.9.1 Enhanced Logical Database FTI_TR_POSITIONS

The output structure of the logical database FTI_TR_POSITIONS, which you can use to evaluate positions in the Transaction Manager for a given key date, is enhanced by the following impairment key figures.

Features



S_AM_AD_LS_AL_PC Amortization Adj. of Loss Allowance in Position Crcy. (Sim.)

S_AM_AD_LS_AL_VC Amortiz. Adj. of Loss Allowance in Valuation Crcy. (Sim.)

S_AM_AD_LS_AL_LC Am. Adj. of Loss Allowance in Local Crcy. (Sim.)

S_AM_AD_LS_AL_DC Amortization Adj. of Loss Allowance in Display Crcy. (Sim.)

S_AM_AD_LS_AL_FX_LC Amortization Adj. of Loss All. FX in Lcl. Crcy. (Simulation)

S_AM_AD_LS_AL_FX_VC Amortization Adj. of Loss All. FX in Val. Crcy. (Simulation)

S_OF_LS_AL_PC Offset Loss Allowance in Position Currency (Simulation)





S_OF_LS_AL_VC Offset Loss Allowance in Valuation Currency (Simulation)

S_OF_LS_AL_DC Offset Loss Allowance in Display Currency (Sim.)

S_OF_LS_AL_LC Offset Loss Allowance in Local Currency (Simulation)

S_OF_LS_AL_FX_LC Offset Loss Allowance FX in Local Currency (Simulation)

S_OF_LS_AL_FX_VC Offset Loss Allowance FX in Valuation Currency (Simulation)

S_OCI_OF_LS_AL_PC OCI Offset Loss Allowance in Position Currency (Simulation)

S_OCI_OF_LS_AL_DC OCI Offset Loss Allowance in Display Currency (Simulation)

S_OCI_OF_LS_AL_LC OCI Offset Loss Allowance in Local Currency (Simulation)

S_OCI_OF_LS_AL_VC OCI Offset Loss Allowance in Valuation Currency (Simulation)

S_OCI_OFFS_LOSS_ALLOW_FX_LC

OCI Offset Loss Allowance FX in Local Currency (Simulation)

S_OCI_OFFS_LOSS_ALLOW_FX_VC

OCI Offset Loss Allowance FX in Valuation Currency (Sim.)

S_CN_CG_PC Contractual Change in Position Currency (Simulation)

S_CN_CG_VC Contractual Change in Valuation Currency (Simulation)

S_CN_CG_LC Contractual Change in Local Currency (Simulation)

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S_CN_CG_DC Contractual Change in Display Currency (Simulation)

S_CN_CG_FX_LC Contractual Change FX in Local Currency (Simulation)

S_CN_CG_FX_VC Contractual Change FX in Valuation Currency (Simulation)

S_AM_COST_PC Amortized Cost in Position Currency (Simulation)

S_AM_COST_VC Amortized Cost in Valuation Currency (Simulation)

S_AM_COST_DC Amortized Cost in Display Currency (Simulation)

S_AM_COST_LC Amortized Cost in Local Currency (Simulation)

ZERO_POSITION Zero Position on Key Date

.INCLUDE PD and LGD values for LDB positions

12M_PD 12-Month Probability of Default

LIFETIME_PD Lifetime Probability of Default

LGD Loss Given Default

12M_PD_ORG_AQU_DAT 12-Month Probability of Default Lot Position

LIFETIME_PD_ORG_AQU_DAT

Lifetime Probability of Default Lot Position

LGD_ORG_AQU_DAT Loss Given Default for Lot Original Pos Acquisition Date

CLASSIFIER_01 External Stage Value

CLASSIFIER_02 Internal Stage Value




CLASSIFIER_03 Position Classifier Value

CLASSIFIER_04 Position Classifier Value

More Information

For more information about the 0CFM_INIT_POSITIONS DataSource, see the application help for SAP ERP on SAP Help Portal at http://help.sap.com/erp. Open the product page for your SAP ERP release, and search for "Logical Database FTI_TR_POSITIONS".

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